Kenya risks being slapped with Ksh158.8 billion ($1.4 billion) damages if it terminates contracts with private firms that have built roads and solar power plants under the new public private partnership models.
National Treasury disclosures on seven projects that are either operational or under implementation show that Kenya would pay $1.4 billion for early termination of the PPP contracts due to government default.
These projects include the Nairobi Expressway, which is owned by China Road and Bridge Corporation (CRBC), roads and power plants.
Kenya is seeking to maintain the pace of spending on new infrastructure with funding from private backers while reducing borrowing and budget deficit.
The private investors will earn from charging user fees like toll charges for between 10 and 30 years, but analysts say such financing has often stumbled over government guarantees and revenue sharing arrangements.
“The estimation of contingent liabilities for PPPs is conducted based on a worst-case scenario, i.e. early termination of the PPP contract due to government default," the Treasury said.
"Below are the estimates of the total maximum termination payments, per sector ($510.9 million energy sector and $926.7 million road sector), in the event of GoK default," the Treasury said. The Treasury did not break down how much penalty taxpayers will pay for the specific infrastructure projects.
The PPP model has been mooted as an alternative to finance costly infrastructure projects outside the limited State budget.
President Mwai Kibaki approved the Public Private Partnership (PPP) Act in January 2013 but the use of private capital to build infrastructure has failed to pick up.
The government is turning to PPP deals with the headroom for additional borrowing narrowing.
In the past seven years, the government has borrowed heavily to invest in infrastructure, driving up public debt more than four times from Ksh1.77 trillion ($16 billion) in February 2013 to Ksh7.9 trillion ($71.4 billion) at the end of last week.
This sharp growth in public debt, which is now up to 73 percent of gross domestic product (GDP) has limited the financing options for further infrastructure investment.
The Treasury says the Government has identified a series of priority sectors for development of PPPs, including ports, roads, rail, power transmission, health, housing, water and sanitation and blue economy.
Currently, the seven projects including the Nairobi Expressway, Ngong-Kiserian-Isinya annuity road, Malindi Solar, Alten Solar, Cedate Solar Power, Chania Green and Selenkei SolarPower have been approved by the PPP Committee.
Construction is in progress for the 27-kilometre Ksh73 billion ($660.3 million) Nairobi Expressway, which will run from Jomo Kenyatta International Airport (JKIA) to the James Gichuru junction on Waiyaki Way.
The Kenya Rural Roads Authority (KeRRA) has also used the PPP model, under the road annuity programme, to construct the 91-kilometre Ngong-Kiserian-Isinya to Mashuru-Isara road.
Kenya is also negotiating terms for a 175-kilometre Ksh180 billion ($1.6 billion) Rironi-Nakuru-Mau Summit highway, which is being expanded to cater for increased traffic along the busy corridor. The State has been accused of failure to make full disclosures on the PPP deals.
A parliamentary advisory on economic affairs has warned inadequate disclosures on tolling of the Nairobi Expressway could result in public resistance, potentially jolting government plans to have the Chinese contractor recover costs from charging motorists using the road.